Divorce and Maximizing Your Home-Sale Profits
Divorce can complicate your financials in surprising ways. Many divorcing couples sell their family homes in the course of their divorces, which can have significant financial implications. Your home is likely your most substantial asset. Maximizing the profit you make on its sale (and minimizing the tax consequences) is critical.
Capital Gains Home Exclusion Rules
The IRS allows a couple who files jointly to exclude up to $500,000 in capital gains from the sale of their home, or $250,000 in such profits for someone who files singly. If you are a divorcing couple currently living in your family home, consider the following two capital gains exclusion rules (which you must meet to avoid being taxed on the profits made from the sale of your primary home):
You and your spouse must have used the home being sold as your primary residence for at least two out of the previous five years.
The untaxed profit cannot exceed $500,000 (for a couple) and $250,000 (for a single filer).
For Divorcing Couples
Divorce is a significant transition for every couple who goes through it, and it is easy to lose track of one or two details along the way. Further, divorce can take a significant amount of time – especially for complicated, high-asset, or contentious divorces. Because this tax exclusion can maximize your profits on the sale of your home, it is crucial to focus on the pertinent details as they apply to your divorce.
Until your divorce is final, you and your divorcing spouse can continue to file your taxes jointly, which can be a financial advantage for both of you. As time passes, however, it is not uncommon for one divorcing spouse to move out of the family home, and this is where things can get tricky. Suppose the spouse who moves out does not fulfill the two-out-of-five-years requirement. In that case, he or she will not qualify for the $250,000 tax exclusion, which can have financial implications for both of you regarding the division of your marital property. If you have to sell your house because of a divorce, it is often best to begin the sale earlier rather than later.
It is also essential to be aware that this tax exclusion will not apply if you have used it on another home 24 months prior. Further, remarrying before selling your home could disqualify you from this tax exclusion.
Discuss Your Tax Concerns with an Experienced Killeen Divorce Attorney Today
The tax implications of divorce can become very complicated very quickly. At The Law Office of Brett H. Pritchard in Killeen, Texas, Brett Pritchard is a dedicated divorce attorney. His office has extensive experience helping clients like you successfully navigate toward outcomes that protect their financial interests. We are here to help, so please do not hesitate to contact us at 254-501-4040 for more information today.